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Useful cases for 203 complete.docx

Commercial Law
Course Code

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Salomon v Salomon Ltd [1897]
Separate Legal Entity
Piercing the Corporate Veil
Mr Salomon had a successful sole proprietor
He wished to transfer business to company
Mr Salomon entered into agreement to transfer business to company
in return for a debenture and shares
20,000 shares and 10,000 pounds in cash secured by debenture over
the assets of the company.
Company formed
Mr Salmon and four sons, daughter and wife took one fully paid share
each 7 Shareholders
Held: There was no fraud as no one was mislead. A company either exists or it
Lee v Lee’s Air Farming Ltd [1961]
Separate Legal Entity
Lee formed LAF in 1954
LAF had 3,000 shares, Lee took 2,999 and a solicitor took the other
Lee was appointed Governing Director
Lee was also chief pilot of LAF
Lee died in an aircraft accident in 1956
Wife wanted “workers” compensation
Workers were only available to “workers”, must be “employed” by
Issue: Was Lee an employee of LAF< even he was governing director
and (virtually) the sole shareholder?
Held: There was a contractual relationship between Lee and LAF
The fact he was director did not change this. He wore two hats, as Governing
Director he gave instructors on behalf of company, and as employee acted on
those instructions.
If he had ever ceased to be a director, there would still be valid contract.
Gave orders on behalf of LAF, and Obeyed them in a personal capacity.
Re: Securitibank Ltd [1978]
Separate Legal Entities
Two companies Merbank and Commercial Bills were wholly owned
subsidiaries of Securitibank
Involved in financing transactions
Issue: Were the transactions money lending? If so, void for failure.
There was no sham, compnies were separate entities and dealth with each other
as such. Court was reluctant to pierce veil.
Savill v Chase Holdings Ltd [1988]
Separate Legal Entities
Representations from CC were not enough to create apparent authority.
Authority must come from the principal
Chase Holdings (CH) was a subsidiary of Chase Corporation (CC)

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Savills agreed to sell shares to CH
Agreement was conditional upon CC agreeing to sell a piece of land to
the Savills
Agent acting for CH told Savills that CC had agreed to sell the land
CC denied this and says that the agent had no authority
Issue: Were CH and CC bound to complete the agreements?
Held: “It is appropriate to pierce the corporate veil only where special
circumstances exist indicating that it is a mere façade concealing the true facts”.
On facts, veil not breached. No sham.
Chen v Butterfield [1996]
Piercing corporate veil
Mr and Mrs Butterfield leased a furniture shop as partners from
Sold premises to Chens
Notified Chens that Butterfields were forming a company to take over
the lease, would not give a personal guarantee.
Company formed and took over the lease.
Company failed to make rental payments and the Chens sued the
Butterfields personally claiming that the company was a mere sham
and that the veil should be pierced.
Held: No Sham
Re: Fletcher Challenge Forests Ltd [2004]
Major Transactions
Separate Legal Entity
Fletcher Challenge Forests Ltd (FCF), owned three subsidiaries, which
owned forest assets.
Subsidiaries received an offer to buy forest assets; FCF was not a party
to the contracts.
Total value of forest assets more than half the value of FCF’s assets
Was this a major transaction for FCF?
Held: Plain meaning of company does not include a group of companies
FCF was not actually disposing of assets; still held shares in subsidiaries.
Therefore FCF not required to obtain special resolution.
Case turned upon wording of s.129
Daimler Co Ltd v Continental Tyres [1916]
Piercing the Corporate Veil
Case during WW1 when England and Germany were at war.
Company incorporated in England but shareholders and directors were
German-Continental tyres sued Daimler for payment of a debt.
Held: Debt should not be paid and the veil was lifted as the Court said not where
company incorporated but where the control was that was important.
Gilford Motor Co Ltd v Horne [1933]
Piercing Corporate Veil
Horne was appointed Managing Director of Gilford Motor Company Ltd

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Horne’s contract contained a restraint of trade clause prohibiting him
from soliciting customers of GMC both while and after he was
Managing Director
Horne was dismissed and he set up his own business in competition
with GMC (in clear breach of the restraint)
GMC advised Horne of the clause and in response he formed a
company JM Horne and Co Ltd to carry on his business
JM Horne was his wife’s name
He used the letterhead from previous business.
Held: Veil was pierced, injunction issued. “The company was a mere cloak or
sham”. He was using a legal form to hide what the reality was.
Jones v Lipman
Separate Legal Entity
Piercing the Corporate Veil
Lipman agreed to sell land to Mr and Mrs Jones and signed agreement
Lipman changed his mind and moved land to a company owned and
controlled by him
Company was purchased specifically for the purpose of holding the
Held: There was a sham.
Beckett Investment Management Group Ltd [2007]
Separate Legal Entity
Mr Hall signed an employment contract with the parent holding
company promising not to solicit its customers within a certain period
after leaving.
Parent company had no customers, all services performed by
Literal meaning of contract would render the contract meaningless
Held: Group was treated as one entity for the purposes of enforcing the covenant.
Veil was lifted through the interpretation of the contract and at the request of the
Official Assignee v 15 Insoll Avenue Ltd [2001]
Separate Legal Entity
Piercing the Corporate Veil
Mr Russell formed a company called Jojac Holdings Ltd
Original directors for fictitious persons
Russell issued shares to his young children, subscribing for them as
“parent”; children never received dividends and didn’t know that they
owned shares; Russell subsequently transferred shares away without
their knowledge.
Shares issued to wife, girlfriend, children without their knowledge.
Shareholders signed documents without knowing what it was about.
Jojac purchased a property in 1989
1994 Russell became bankrupt.
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